When competitive advantage isn't advantageous

Several years ago, I was working for a company with a very successful niche product: We made equipment used in the validation, burn in, and testing of newly manufactured chips. When I signed on, times were really good -- so good, in fact, that no one in management was at all worried about being able to sell our next-generation chip tester.

As sales of the flagship model started to level off in the U.S., we looked overseas. The Koreans showed interest, so we let them field-test a couple of units. They ordered three machines, took delivery of one, and cancelled the order. I wasn’t privy to much of the information that management was, but I heard through the grapevine that shortly afterward, as soon as the Korean company succeeded in reverse engineering the machine that they bought from us, they started selling their own version in Asia at a price point we couldn’t compete with. That was the beginning of the end.

Management tried working out a few deals with different chipmakers to modify our machine so it could test a wider variety of silicon. As chief software engineer I was sent out to do modifications, installations, and upgrades. While I was on site at various chip-manufacturing plants, I got to take a look at some of our competitors’ chip testers in action. Man! The user interfaces on those machines sucked in comparison to ours. (Several of the technicians at those companies said the same thing.)

My boss, head of our software department, went on a few of these trips with me and came away with the same impression. Then we had a brainstorm: Why not retrofit our software to run on our competitors’ machines, and sell it as a separate product? We estimated that it wouldn’t take more than a few months to rework the code. But when we suggested our brilliant scheme to upper management, they said, “No way!” They insisted that our software gave our hardware a competitive advantage; it was too important to sell separately. Anyway, they pointed out, our company had always been first and foremost a hardware company.

Some competitive advantage, when you don’t have a new product to run it on. Our hardware business was drying up as quickly as silicon prices were dropping. Chip manufacturers were figuring out ways to build testing circuitry into their new devices, eliminating the need for the validate-and-test features of our equipment. Now all they needed were ovens to burn in their new devices.

Our engineers took pay cuts across the board, but that didn’t help for long. Out came the first round of pink slips, then the next, then the next. I survived four rounds before I decided to bail.

My team had been doing a fantastic job creating software for our next-generation machine. In fact, when I left, we were weeks away from shipping the beta model to a customer’s site for final testing. Apparently, the customer’s purchasing department decided that even though it was the best tester they’d ever seen, it was way too expensive. No sale.

The last I heard, there was one developer in software, one hardware engineer, a few support people, and a trimmed down executive staff -- just enough to close the doors. Oh, and a completed (but expensive) new tester with a fantastic competitive advantage.